Living Apart Together: The economic value of ethnic diversity in cities

Why are cosmopolitan cities like New York, London, and Amsterdam attractive residential locations? Apart from the fact that there are many well paid jobs, these attractive residential cities are also rich in amenities. These amenities include good public services, but also an abundant supply of services and consumer goods such as shops, restaurants, museums, concert halls, sport venues and theatres. Large cities not only have many amenities, but also very diverse amenities like specials shops or museums that you cannot find in other, smaller, towns. One of the reasons for this diversity of amenities is the diversity of a large city’s population with a variety of tastes and preferences. One reason for the variety of the population is the presence of immigrants in large cities. Immigrants contribute to the diversity of amenities because, generally, cities with a larger immigrant population have more ethnic amenities like Turkish supermarkets and Thai restaurants. In recent research Jessie Bakens, Raymond Florax, Henri de Groot and Peter Mulder investigate whether a larger supply of ethnic amenities increases the attractiveness of residential locations.

For this purpose the researchers looked whether ethnic restaurants in Amsterdam increase the attractiveness of residential locations, despite the fact that there are typically more people with a non-Dutch background living in these locations. House prices are used as an indicator for the attractiveness of the location. It is assumed that house prices are higher in neighbourhoods with many ethnic restaurants if this is considered a positive feature of the neighbourhood, and house prices are assumed to be lower if the presence of migrants is considered a negative feature of the neighbourhood. The hypothesis being tested is that the presence of immigrants decreases the attractiveness of a neighbourhood, while the presence of ethnic restaurants increases the attractiveness of a neighbourhood. Taken together, both effects may lead to a trade-off.

In many cities, including Amsterdam, it is still the case that immigrants tend to live in the neighbourhoods with the lower house prices. The research shows that there is indeed a trade-off in some neighbourhoods in Amsterdam between the presence of immigrants and the supply of ethnic restaurants: the negative effect of immigrants on house prices can be off-set by the positive effect of ethnic restaurants on house prices. Bakens, Florax, De Groot and Mulder thus confirm the hypothesis that immigrant-induced-amenities increase the attractiveness of a city. The effects of a larger supply of ethnic amenities are more substantial than the effects of a diverse supply of ethnic amenities. The trade-off is especially found in neighbourhoods with an immigrant population that is not too diverse.

Jessie Bakens
Raymond Florax (†)
Henri L.F. de Groot 
Peter Mulder


This blog is based on Living Apart Together: The economic value of ethnic diversity in cities (TI Discussion Paper 2018-029/VIII)  by the authors.